Disrupting the Insurance Industry

The insurance industry is facing significant disruption with the arrival of new, non-traditional players into the market. Customer-centricity is now the watchword.

Disrupting a multi-trillion dollar industry

Insurance industry is by nature a very strange animal. The insurer sells an intangible promise: indemnify clients in the event of a hypothetical occurrence of an accident. The business model is based on the perception of a potential risk. In any industry, the supplier presents or delivers its product before being paid. Insurance, however, has a reverse production cycle. And, that is typically the combination of the intangibility of the product and its human centricity by nature that creates both mistrust towards the industry and heavy regulation.

The ongoing digitalisation of the society and economy, the explosion of mobile devices and constant connectivity require that companies adapt to the ever-growing needs of customers. New behaviors, new uses and new technologies as well as new regulations, such as Solvency II, have shaken the world of Insurance because it is just as impacted by the “digital way of life” as any other sector and industry. New business models are emerging, driven by startups that are redesigning this sector by developing new services and competing with traditional insurers, to answer the needs of empowered customers.

Newcomers segmenting the insurance value chain

The integration of digital-only players into the insurance ecosystem will vertically segment the entire insurance value chain. This segmentation will align the interests of companies and consumers, as players will focus on the niche where they hold maximum advantage without cannibalizing other parts of the value chain to gain profits.

We hear more and more often about insurance startups that raise several millions from VCs. Lately, several Insurtech made headlines, among which:

Trov, an entirely mobile, on-demand insurance provider for individual items, now available in Australia and the UK and soon to be available in the US, recently raised $45M for its further global expansion.

One is a fully digital, fully licensed, full stack insurance carrier. It has raised €10M and got acquired by WeFox Group in June 2017 for an undisclosed amount.

Customer centricity is the key word

These newcomers, or as they like to present themselves “tech companies that do insurance”, address the new kind of customers now accustomed to look for information, competition, comparison and who demand customization, a seamless end-to-end customer experience, simplicity, instantaneity, transparency, whichever the sector. To do so, state-of-the-art and innovative technologies are a prerequisite but they are still a means to an end. A necessary condition but not a sufficient one. At the Innovation conference Viva Technologies held in Paris in June 2017, customer-centricity in the insurance industry was the key word.

Charles Gorintin, Co-founder and CTO of Alan, and Samir El Alami, co-founder of One, both stressed, during a panel at Viva Tech, that their goal was to make the life of customers easier. Taking into account scalability objectives, that still means for both of them delivering the highest level of service regardless of the number of customers.

What does customer-centricity exactly mean?

Availability - Aside from being responsive and easily usable in mobility contexts, a highest level of service implies activity and reactivity: faster registration, less paper work to speed up processes, faster dealing of claims, and faster payments. It means that claims should take seconds to process and payments should be available in the next 24h.Transparency - Ensuring understandability and simplicity of the products and their pricing will contribute towards gaining and retaining customers’ trust. An effort should be done to avoid fine prints and complex contract writing. Transparency also means enabling customers to add and remove items from policies at will, and enable them to leave at any time - no lock of contract. Furthermore, giving back to community members who did not make claims is also part of the business model.Customization - such as the integration of alternative data sets (** from IoT, connected devices, social media, etc) in order to provide different pricing models (pay-per-use, flat rate, etc). Customization through different technologies also enables insurers to gather metrics to better understand their customers, create partnerships with other businesses to build an ecosystem that would benefit the customer. Keeping, of course, in mind regulations and ethics in regards to data privacy, data protection & data security.

The big opportunity to disrupt the insurance industry thus does not reside in making existing products into digital ones but rather in altering profoundly the entire value proposition to improve the customer experience. And that is made possible for startups because their competitive advantage is based on their strategic vision, customer experience understanding, technological and organizational agility, and market adaptability.

Transformation required in Big Insurance Players

Big insurance players suffer from a very pyramidal, top-down, organizational structure that hinders fast decision-making and innovation. From a technological point of view, big insurance players also have legacy information systems that makes it difficult to adapt quickly to the new digital models of consumption.

There is a need for a profound transformation of these big insurance players. As Nathalie Lahmi, Digital Marketing Director at Allianz France, pointed out during another panel at Viva Tech 2017, big insurance players do not always have the know-how or the technology to disrupt the industry. Nevertheless, she also stressed that customer centricity has become a priority. To that end, Allianz France announced last year that they created a dedicated customer service division in 2016, directly linked to the Executive Committee. Some would say, “it’s too little, too late”, others would say “baby steps”.

Yet big insurance players do not necessarily see Insurtech as competition, but as complementary, especially in regards to innovation. That is why Allianz or Axa, both in the top 3 of Net Premium Written and Non Banking Assets Global Insurers ranking, look into cooperating and investing into startups, as a way to innovate. This view is similarly shared between Banks and Fintech.

It seems however that, at this point, it is just a way of applying things at the outskirts and not within organizations. To be clear, for many, it appears as a “smoke & mirrors” formula for communication, marketing, and frankly, show. Sure, pure players witness the rise of Insurtech and keep a watchful eye on their evolution,but what are a few millions dollar investments in a multi-trillion industry? So far Insurtech are all bark and no bite. Yet.

Without a clear strategy along with tactical planning and change management, a transformation will not be achieved

Big insurance players are still locked in a logic of technological catch up rather than leaders of innovation. However this might be due to the difficulty of genuinely understanding what innovation really requires and why transformation is necessary. Investing here, tweaking there, launching an app, does not make a company digital nor customer-centric. Without a clear strategy along with tactical planning and change management, a transformation will not be achieved. Truth be told, it is difficult, challenging and time-consuming to profoundly alter legacy organizations and systems but a real transformation process is not only required but absolutely necessary in this fast-changing digital and experience economy.